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Will Unpaid Debt Ever Go Away On Its Own? (Yes, But Don't Hold Your Breath.)

Alex Huntsberger
Alex Huntsberger is a personal finance writer who covered online lending, credit scores, and employment for OppU. His work has been cited by, Business Insider, and The Motley Fool.
Read time: 5 min
Updated on January 28, 2022
Once the statute of limitations for a debt has passed, it becomes uncollectible. But in the meantime, it can still do lots of financial damage.

We all know that diamonds are forever, but what about unpaid debts? Do those come with an expiration date? While paying back the debts you owe is super important, we all know that there are times where it just ain’t going to happen. But do debts ever really expire?

The completely accurate answer is: No, they don’t. But the more realistic answer is: sort of. Because debts aren’t really like diamonds at all. They have statutes of limitations. After a while, most personal debts will become basically uncollectible.

Here’s what happens when you get sent to collections.

When you fail to pay back a debt (with loans, this referred to as “defaulting”), it gets sent to collections. Sometimes this is a separate department at the lender itself, but most of the time the lender just sells the debt to a collections agency. The same holds true with medical debt.

When you’ve been sent to collections, the agency will usually try to contact you and demand payment. They may do so by phone, email, regular mail, or text message. They might also try and employ a lot of sketchy tactics like threats or harassment or pretending they are someone that they are not.

Third party debt collection is mainly governed by the Fair Debt Collection Practices Act (FDCPA). To learn more about legal and illegal debt collections practices, check out our blog post: What Debt Collectors Can and Can’t Do.

One thing that debt collections can do is take you to court over an unpaid debt. They usually wait to employ that option because no one likes going to court, not even debt collectors. If the judge issues a ruling in their favor, they can garnish your wages—taking a portion of your paycheck until the debt is paid off.

However, there is something that debt collectors cannot do. They cannot collect on your debt forever.

Debts come with a statute of limitations.

Think about a statute of limitations like a time limit. After a certain amount of time, a debt becomes uncollectible in the same way that, after a certain amount of time, a person cannot be prosecuted for certain crimes.

Now, this doesn’t mean that you can take out a personal loan or a credit card or receive a bill for medical services and just wait it out without any repercussions. For one, failing to pay back money that you owe will wreak absolute havoc on your credit score. (For more on personal loans, visit the OppU article "What is a Personal Loan?" here.)

Plus, these statutes of limitations last for a matter of years, so you’re much more likely to get taken to court over an unpaid debt and have your wages garnished during the period when the debt is collectible than you are to successfully wait it out.

For the most part, the statute of limitations on a debt will start ticking after the date of your most recent payment. So let’s say you take out a personal installment loan with a six-year statute of limitations, and after three years you stop making payments. The statute wouldn’t come into effect until six years after that last payment—nine years after you first took out the loan.

The statute of limitations on a debt will depend on the "what" and the "where."

The statue of limitations on a debt will vary based on two factors: the type of contract that was signed and the state in which the debt was taken out. Oh, and when we state we mean, like, Delaware or Illinois, not "state of mind" or state of "inebriation." (You’ll be hard-pressed to get out of a loan agreement by arguing that you signed it while drunk.)

The four basic types of loan contracts are:

  • Oral Agreement: This is debt agreement that is made verbally, without a written documentation of the agreement. (We generally recommend you don’t do this, especially with friends or family.)
  • Written Contract: This is debt agreement that is made in writing. It must be signed by both parties.
  • Promissory Note: These are like written contracts, but they include a deadline for repayment and stated information on the interest rate.
  • An Open-Ended Agreement: These are like written contracts, but they are specifically for accounts with a revolving balance, like credit cards.

And now here’s where it gets really fun. Not only are there four different types of contracts, but the statutes of limitation vary across all 50 states. That makes for a total of 200 different statutes of limitations to keep track of at the national level.

To check out a handy-dandy table that lays out all 200 statutes, check out our blog post: Does Medical Debt Really Go Away After Seven Years?

A statute of limitations is not a “get out of jail free” card for debt.

Remember that blog post we just mentioned? The one from two seconds ago? You should also read it if you’ve ever heard of the so-called “seven-year rule” for medical debt. Basically, the rule says that medical debts expire after seven years, which isn’t true at all.

This urban myth probably arose from two factors: the statute of limitations and the amount of time (seven years) that a debt will stay on your credit report. Unfortunately, it’s just not that simple. No debt ever is.

In general, it isn’t helpful to think of the statute of limitations on a given debt as a finish line that you have to cross. It is there to protect people from getting taken advantage of by predatory collectors who will dredge up old loans or medical bills and intimidate people into paying them.

If you are having trouble paying back a loan, credit card, or other debt, you should talk to a credit counselor or even contact your creditors directly to try and negotiate more favorable terms. You might even want to consider filing for bankruptcy protection.

Don’t try to outlast your debts. Instead, you should face them head on and take responsibility for them. In the long run, you’ll be much better for it.

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